Thinking Fast and Slow by Daniel Kahneman Re-read Week 39: Concluding Notes

Read the book!

When I introduced the logistics of the re-read of Thinking Fast and Slow on April 20, 2019, I anticipated that we would complete in 42 weeks. Doing the math, we kicked the re-read off 294 days or 42 weeks. Applause, please!

I now have read this book twice.  It has influenced my practice both times I read it. Thinking Fast and Slow popularized many of the concepts that are now called behavioral economics and introduced me to cognitive biases. Over the years I have done several presentations on the impact of cognitive biases on process improvement, software development, and testing. Kahneman helped me to stop viewing behavior as the outcome of straight forward maximization equations and something that incorporated more human behaviors. Biases deeply influence how we react. 

 

Thinking Fast and Slow by Daniel Kahneman Re-read Week 38: Conclusion Chapter

Read the book!

This week we complete the material in Thinking Fast and Slow. The Conclusion Chapter is the last of the main material in the book. There are two appendices, notes and an index, I will leave those to the readers of the blog to consume at their leisure. Next week we finish the re-read in earnest with a few closing thoughts. 

 

Thinking Fast and Slow by Daniel Kahneman Re-read Week 35: Chapter 35: Two Selves

Read the book!

Chapter 35, titled Two Selves, begins Section Five.  Kahneman starts this chapter by discussing the concept of experienced utility. Berridge and O’Doherty define experienced utility as “the hedonic or pleasurable experience produced by the outcome when eventually gained.” A person that was attempting to maximize experienced utility would make decisions that yield the most pleasure over other attributes.  

 

Thinking Fast and Slow by Daniel Kahneman Re-read Week 33: Chapter 33 – Reversals

Kahneman starts chapter 33 by contrasting the payout from two fictional court cases – one that occurs in a store a shopper normally goes to and the second In a store the shopper almost never commerces in. When the two outcomes were experimentally evaluated together neither evoked a different payout. When evaluated separately, the outcome was different. The effect of evaluating each incident separately allows System 1 thinking to use substitution and intensity matching to create an emotional scale. In the experiment, there was a higher payout for the incident that happened in the store they frequented less. Kahneman uses the term poignancy, closely related to regret, in order to describe the effect. This effect happens when people grant a higher value or more emotion to something that happens when they act out of the ordinary. The saying “ woulda, shoulda, coulda” sums the feeling up for this effect. The take away for this portion of the chapter is that comparisons between two outcomes create an environment that invokes System 2 thinking which reduces bais and allows clearer decision making. When selling a change program or an experiment, you need to step back and determine how to package the argument. Separating decisions allows attributes to come into play that would generate poignancy which favors the status quo (resist ideas that might cause failure for doing something outside the norm). Separating decisions that could be compared, opens the door to reversals.

 

Thinking Fast and Slow by Daniel Kahneman Re-read Chapter 32: Keeping Score

Daily life seems to be a combination of action and inaction of getting things done or listening to people tell you about what they have done, but the constant is that everyone is keeping score. Perhaps not consciously, but everyone has a set of mental accounts. Chapter 32 explores how those tallies shape preferences and motivate actions.

 

Thinking Fast and Slow by Daniel Kahneman Re-read Chapter 31: Risk Policies

Happy Saturday! Next week begins the poll for the next book. 

Chapter 31 begins by reminding the reader of the idea that people tend to be risk-averse in the domain of gains and risk-seeking in the domain of losses. Stated less academically, people will accept less for an outcome from a sure bet than if the same bet was is less than certain. On the loss side, most people will avoid a certain loss to take a gamble on an outcome that has some chance at a positive outcome even when the probability is low and the loss will be higher. As Kahneman has pointed out in earlier chapters, people are not perfect logisticians when it comes to making decisions. 

 

Thinking Fast and Slow by Daniel Kahneman Re-read Week 30: Chapter 30 – Rare Events

Kahneman begins this chapter with a story about how Israelis reacted to the suicide bombings of the early 2000s.  While the bombings were rare, System 1 Thinking combined with an availability cascade caused an overstated impact on people’s behavior.  He goes further and points out that lotteries have the same basic pattern of behavioral impact. In both cases people overweight unlikely outcomes. The chapter is built on two premises:

 

Thinking Fast and Slow by Daniel Kahneman Re-read Week 29: Chapter 29 – The Fourfold Pattern

 

Some characteristics influence the assessment of a situation more than others. We weight characteristics and attributes whether we are aware or not. When we are not aware we are defaulting to system 1 thinking which as we have read is very biased. This is one reason why formal decision-making processes codify the weighting of attributes to avoid personal biases. 

 

Thinking Fast and Slow by Daniel Kahneman Re-read Week 28: Chapter 28 – Bad Events

The chapters in Part 4 of Thinking Fast and Slow are relatively short and punchy, but the ideas aren’t small. I think these chapters are the most useful on a day-to-day basis.  Chapter 28 goes into depth on the concept of loss aversion. Loss aversion works because people evaluate outcomes as losses or gains, and losses loom larger than gains. If we consider the motives to avoid a loss or achieve gain, humans are driven to avoid losses than to achieve gains. Many of the cognitive biases we have explored earlier support the idea that our brains are wired to see threats above all else.  Threats include words (consider the reaction you get to words like transformation, transition, or change), they cause listeners to think of the possibility of loss which immediately invokes System 1 thinking.

 

Thinking Fast and Slow by Daniel Kahneman Re-read Week 27: Chapter 27 – The Endowment Effect

Chapter 27 begins with a discussion of the classic indifference curve from Econ 101. The indifference curve shows the trade-off between two goods. In this case, Kahneman uses the trade-off between income and leisure to show how overly simple theories generate models that do not describe behavior outside the textbook. The problem that Kahneman points out is the basic indifference map doesn’t reflect context. This is the same point discussed in the chapter titled: Bernoulli‘s Error. Using the indifference curve of a salaried employee with two weeks of vacation. While the person has vacation time to use the trade-off would tend to follow the path of a typical indifference curve, however, when he/she used up 2 weeks of paid time off the slope changes to reflect the potential at one more unit of leisure might require trading off all income. As we have seen before context and starting point really matter.